In the past few days, there has been a rapid pace of developments on the cryptocurrency front in India. These developments make the cryptocurrency story in India queerer.

Background

Earlier this year, the central government was planning to bring a bill in the parliament to ban cryptocurrencies and introduce necessary policy frameworks for the launch of its own digital coin issued by The Reserve Bank of India (RBI). Back in 2018, the RBI had banned cryptocurrencies by asking public sector banks not to offer banking facilities to cryptocurrencies. This led to the closure of many of the cryptocurrency exchanges that had set shops in India. Some of them left the country and shifted their operations to offshore locations. 

However, in 2020, the Supreme Court of India set aside the RBI order, and cryptocurrency transactions once again became legal. At that time, the central government had said that it would bring in a law to ban cryptocurrencies and launch its official virtual coin. But the government has yet not acted on its promise to introduce the bill — Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 – in the parliament that convened in January for the budget session (which usually lasts from February to May with a recess in the middle) after foregoing the winter session (which usually starts either in last week of November or first week of December and lasts for 3 weeks) due to the pandemic. 

After presenting the budget 2021-22, Indian Finance Minister Nirmala Sitharaman said at an event that India would not shut off all options on cryptocurrency and blockchain to ensure that the experiments in this space continue. “Once Parliament is over, I will probably spend more time executing and planning that. On fintech and blockchain, there is a lot of work going on in India and we will certainly encourage that,” she said.

This brought some relief to the cryptocurrency community in India who as per some estimates is believed to be 10-million strong and their investments are to the tune of $1.5 billion. Around the same time, the Ministry of Corporate Affairs (MCA) announced that every Indian company will have to disclose the details of their cryptocurrency holdings and transactions for 2020-21 in their annual financial report submitted to the different regulatory bodies.

The government decision was interpreted differently by many people. For example, some believed that the intention of the government is to regulate the use of cryptocurrencies in the country and introduce a tax regime for them.

But later, media reports quoting an unnamed Finance Ministry official said that making it mandatory for companies to disclose cryptocurrency holdings and transactions in 2020-21 is not a reflection of the government’s stance on the legitimacy of cryptocurrencies in the country. The official highlighted that cryptocurrency investments in the country have no protection against any fraud as neither the government nor the central bank has issued any guidelines to regulate cryptocurrency trades.

Crypto Held in Overseas Accounts: Disclosure Order Puts Investors on the Edge

Meanwhile, the government’s move to ask companies to disclose their cryptocurrency holdings and transactions has kept the cryptocurrency investors who have bought virtual coins abroad and stored them in overseas wallets. As per the RBI’s Liberalised Remittance Scheme (LRS), Indians can send up to $250,000 abroad for different purposes including purchasing real estate and securities. But the list of permissible investments does not include cryptocurrencies.

Now, cryptocurrency investors are baffled — whether they should disclose their cryptocurrency holdings maintained in overseas accounts. If they do, the legality of their investment comes under the scanner, and if they don’t, they might get pulled up later on when these assets come to the regulator’s notice when the investors try to bring the money back to India through the formal banking system. There is no clarity about what is the right thing to do in this case.

Business as Usual: Exchanges Keep Making News

Coinsbit India 

Meanwhile, a number of developments have made the cryptocurrency scene more invigorating than ever. For example, Europe’s most extended cryptocurrency exchange Coinsbit has launched its operations in India through a new company called Coinsbit India.

To make itself popular among cryptocurrency investors and attract them, Coinsbit India has launched an airdrop scheme billed as “India’s Biggest Airdrop”.

Wazir X

The opening of the Coinsbit India trading platform is significant in the light of two other developments in the same space recently. The first was the crashing of Binance-owned India-focused home-grown crypto exchange WazirX due to excessive traffic on April 4, 2021.

However, the exchange achieved a new milestone: it crossed a daily trading volume of $200 million for the first time, and first for any India-centric exchange. That day, the actual trading volume soared to $270 million, making the Indian media splash it on their front pages. The next day, its trading volume grew to cross $350 million. WazirX had come into being in March 2018, barely 3 weeks before the RBI had imposed its ban on cryptocurrencies in April 2018. The company is now eying $1 billion in daily trading volume this year.

Coinsbase India Office

Another development that has kept cryptocurrency investors in India amused is the news related to US-based Coinbase with a $100-billion valuation. Before it became the talk of the town with its listing on Nasdaq on April 14, it was in news in India about a fortnight back for plans to set up its backroom office in Hyderabad, India.

It’s the same city where Coinsbit India is having its office. Hyderabad is another major IT hub after Bengaluru, and Coinbase is planning to hire engineers, software developers, and customer care professionals as it intends to have its presence on a sound footing in the country before the Indian government rules become more pliable towards cryptocurrency trade.

As so much is happening at the cryptocurrency front, best signified by the breath-taking rise of Bitcoin’s valuation that soared close to $65,000, India’s policymakers’ silence is more confusing than reassuring about its likely policies for the sector.

Former Coinbase CTO Balaji Makes a Strong Case for Crypto Adoption 

While the Indian government has chosen to look the other way even when cryptocurrencies seem to be coming of age and making more governments and corporations adopt them, the industry pioneers are not silent.

In a highly publicized blog, former Coinbase CTO Balaji S. Srinivasan has argued that India should add crypto to IndiaStack, an API with data of over a billion Indians, and Unified Payments Interface (UPI).

In an interview earlier this year, he had said that the ban would lead India nowhere and it would be forced to join the cryptocurrency movement 3 to 5 years down the line. But by then it would lose the competitive advantage it has at the moment, thanks to digital infrastructure and protocols such as IndiaStack.

Among other important things in his post, Balaji said that the addition of crypto to India’s digital payment interface will open the country to huge foreign investments in the form of crypto. Srinivasan says crypto can do to Indian businesses what the internet has done to information, and what email has done to written communication. India with 1 billion smartphone users stands a chance to attract investments of about $250 billion a year. He gives the example of how Ethereum has disrupted the credit and finance sector by introducing decentralized finance. He argues that with virtually everyone holding a smartphone, they can access crypto funds like businesses access Wall Street for their capital requirements. 

Indian Government Wants Blockchain 

In his personal capacity, Srinivasan is right now working on Smart Contracts with blockchain as the primary technology. The government of India, too, wants to use blockchain technology for other purposes, for example, to create a land registry.

Srinivasan’s arguments in the blog formed the basis of a Bloomberg opinion piece that went with the headline: “Wall Street for All? India’s Crypto Crowd Fights Back”. The opinion piece was carried prominently by all major financial dailies and digital media outlets in India.  

The Political Tightrope

With so much of pro-crypto happening at its doorsteps, can India shut its doors on what is billed as the “currency of the future?” More importantly, can the Indian government afford to lose sight of what the Bloomberg opinion piece said in its headline? The Bharatiya Janata Party (BJP) which is in power at the centre is known for its nationalist ideology.

It is worth watching out how Prime Minister Narendra Modi’s government strikes a balance between what looks like pragmatism and what his party folks would want him to do on an issue like cryptocurrencies that does not resonate well with India’s huge population of the poor. Giving a go-ahead to crypto might further strengthen Modi’s image as pro-rich and that might not be in his interest especially when the pandemic has ravaged the economy. He doesn’t have much elbow room as the general elections are due in 2024.